Fitch Downgrades Greek Banks to 'CCC' on Sovereign Downgrade   

LONDON--(BUSINESS WIRE)-- 01 April 2015

Fitch Ratings has downgraded National Bank of Greece S.A.'s (NBG), Piraeus Bank, S.A.'s (Piraeus), Eurobank Ergasias S.A.'s (Eurobank) and Alpha Bank AE's (Alpha) Long-term Issuer Default Ratings (IDR) to 'CCC' from 'B-' and Viability Ratings (VRs) to 'ccc' from 'b-'. At the same time, the four banks' ratings have been removed from Rating Watch Negative (RWN). A full list of rating actions is at the end of this rating action commentary.

The rating actions follow the downgrade of Greece's sovereign rating on 27 March 2015 (see 'Fitch Downgrades Greece's IDRs to 'CCC'' at www.fitchratings.com) and reflect Greece's weaker economic prospects, which put the banks' asset quality and solvency at further material risk. The downgrades also reflect pressures on funding and liquidity as we expect deposit outflows at best to continue until a compromise deal between Greece and its creditors is reached.

KEY RATING DRIVERS - IDRS, SENIOR DEBT AND VRS

The banks' Long-term IDRs and senior debt ratings are driven by their standalone credit fundamentals, as expressed by their VRs.

The 'ccc' VRs reflect Fitch's view that failure risk at these banks is a real possibility given funding, liquidity and solvency pressures in the context of the exceptionally challenging domestic operating environment, with potential further deterioration in loan quality, as well as direct exposure to the weakened Greek sovereign.

The deterioration in operating conditions increases the risk to Greek banks' already weak funding and liquidity due to continued deposit outflows, whilst repo markets remain closed. The system has lost EUR24bn of domestic private sector deposits since November 2014, or 15% of the total, in line with our expectations. As a result, central bank funding increased to EUR104bn at end-February 2015 (26% of system assets), of which 63% is from the Emergency Liquidity Assistance (ELA). Remaining ELA collateral buffers (around 35% of system domestic private sector deposits) seem sufficient to face additional deposit outflows, but will come under more pressure as loan quality deteriorates. Moreover, ELA is only available temporarily for solvent banks and its capacity is subject to approval by the ECB. This makes the funding and liquidity of Greek banks extremely sensitive to any changes in the ECB's supervisory arm's opinion of the banks' solvency.

The banks' senior debt ratings are in line with their IDRs, based on Recovery Ratings of 'RR4', reflecting Fitch's assumptions that recoveries would remain at average levels in the event of default.

RATING SENSITIVITIES - IDRS, SENIOR DEBT AND VRS

Greek banks' Long-term IDRs are sensitive to changes in the factors affecting their VRs. The VRs would be downgraded if sovereign risk increases. They would also be downgraded if the ECB's view of their solvency changed or if the ECB otherwise decided not to permit an ELA extension, which would likely trigger bank default. We assume that failure of the sovereign to reach a compromise deal with its creditors will have further negative implications for the banks' solvency, funding and liquidity. The latter would be likely to include protracted and potentially heightened deposit outflows that could ultimately lead to restrictions on the banking sector to reduce liquidity strains, especially if ELA funding is restricted.

The ratings and Recovery Ratings of senior debt issued by the banks and/or their issuing vehicles are primarily sensitive to encumbered asset levels, collateral constraints and/or Fitch's assumptions of recovery prospects, which may be affected by depositor preference amid the implementation of the Bank Recovery and Resolution Directive (BRRD).

KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

The banks' Support Ratings of '5' and SRFs of 'No Floor' reflect our expectation that while future support from the state is possible, it cannot be relied upon given the limited resources at Greece's disposal.

In Fitch's opinion, Greek banks' SRs and SRFs are unlikely to be revised upwards given the limited ability of the Greek authorities to provide support. In addition, Fitch believes there is intent to reduce the propensity of state support for financial institutions in the EU, as evidenced by a series of legislative, regulatory and policy initiatives, including the BRRD and the Single Resolution Mechanism.

KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The banks' subordinated debt is notched twice from their VRs due to weak recovery prospects, as reflected by the affirmation of the 'RR6' Recovery Rating. Following the VR downgrades, subordinated debt ratings have been downgraded to 'C'. Subordinated debt ratings could be upgraded if the banks' VRs are upgraded.

Hybrid capital, which is currently not performing, has been affirmed at 'C'/'RR6' and even if it returns to performing status, economic losses are likely to be severe, which makes a rating change unlikely even if the VR is upgraded.

Recovery Ratings are sensitive to valuation and availability of free assets and the breakdown between unsecured and secured liabilities.

KEY RATING DRIVERS AND SENSITIVITIES - STATE GUARANTEED DEBT

The long-term state-guaranteed debt of NBG and Eurobank has been downgraded to 'CCC', in line with Greece's Long-term IDR. State-guaranteed debt issues are senior unsecured instruments that bear the full guarantee of Greece. Consequently, their ratings are the highest of the issuer's Long-term IDR and Greece's Long-term foreign currency IDR. These banks' state-guaranteed debt ratings are sensitive to any changes to Greece's sovereign ratings.

The rating actions are as follows:

NBG:

Long-term IDR: downgraded to 'CCC' from 'B-'; removed from RWN

Short-term IDR: downgraded to 'C' from 'B'; removed from RWN

VR: downgraded to 'ccc' from 'b-'; removed from RWN

Support Rating: affirmed at '5'

SRF: affirmed at 'No Floor'

Senior notes: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior notes: downgraded to 'C' from 'B'; removed from RWN

Hybrid capital: affirmed at 'C'/'RR6'

State-guaranteed debt: downgraded to 'CCC' from 'B'

NBG Finance plc:

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Piraeus Bank:

Long-term IDR: downgraded to 'CCC' from 'B-'; removed from RWN

Short-term IDR: downgraded to 'C' from 'B'; removed from RWN

VR: downgraded to 'ccc' from 'b-'; removed from RWN

Support Rating: affirmed at '5'

SRF: affirmed at 'No Floor'

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Commercial paper: downgraded to 'C' from 'B'; removed from RWN

Piraeus Group Finance PLC:

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Alpha Bank:

Long-term IDR: downgraded to 'CCC' from 'B-'; removed from RWN

Short-term IDR: downgraded to 'C' from 'B'; removed from RWN

VR: downgraded to 'ccc' from 'b-'; removed from RWN

Support Rating: affirmed at '5'

SRF: affirmed at 'No Floor'

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Market-linked senior notes: downgraded to 'CCCemr'/'RR4' from 'B-emr'/'RR4'; removed from RWN

Hybrid capital: affirmed at 'C'/'RR6'

Alpha Credit Group PLC:

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Subordinated notes: downgraded to 'C'/'RR6' from 'CC'/'RR6'; removed from RWN

Eurobank:

Long-term IDR: downgraded to 'CCC' from 'B-'; removed from RWN

Short-term IDR: downgraded to 'C' from 'B'; removed from RWN

VR: downgraded to 'ccc' from 'b-'; removed from RWN

Support Rating: affirmed at '5'

SRF: affirmed at 'No Floor'

Senior notes: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior notes: downgraded to 'C' from 'B'; removed from RWN

Market-linked senior notes: downgraded to 'CCCemr'/'RR4' from 'B-emr'/'RR4'; removed from RWN

Commercial paper: downgraded to 'C' from 'B'; removed from RWN

Subordinated notes: downgraded to 'C'/'RR6' from 'CC'/'RR6'; removed from RWN

Hybrid capital: affirmed at 'C'/'RR6'

Long-term state-guaranteed debt: downgraded to 'CCC' from 'B'

Short-term state-guaranteed debt: downgraded to 'C' from 'B'

ERB Hellas PLC:

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Long-term state-guaranteed debt: downgraded to 'CCC' from 'B'

Short-term state-guaranteed debt: downgraded to 'C' from 'B'

ERB Hellas (Cayman Islands) Ltd.:

Long-term senior unsecured debt rating: downgraded to 'CCC'/'RR4' from 'B-'/'RR4'; removed from RWN

Short-term senior unsecured debt rating: downgraded to 'C' from 'B'; removed from RWN

Long-term state-guaranteed debt: downgraded to 'CCC' from 'B'

Short-term state-guaranteed debt: downgraded to 'C' from 'B'

Additional information is available on www.fitchratings.com

Applicable criteria, 'Global Bank Rating Criteria', dated 20 March 2015, are available at www.fitchratings.com.

Applicable Criteria and Related Research:

Global Bank Rating Criteria

Additional Disclosure

Solicitation Status

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Fitch Ratings
Primary Analyst
Josep Colomer, CFA
Director
+34 93 323 8416
Fitch Ratings Espana S.A.U.
Paseo de Gracia, 85 7th Floor
08008 Barcelona
or
Secondary Analyst
Josu Fabo, CFA
Director
+44 20 3530 1513
or
Committee Chairperson
Michael Dawson-Kropf
Senior Director
+49 69 768076 113
or
Media Relations:
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[email protected]

Source: Fitch Ratings

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